Navy's Progress in Improving Physical Inventory Controls and the Magnitude, Causes, and Impact of Inventory Record Inaccuracies in the Army, Air Force, and Defense Logistics Agency

NSIAD-84-9: Published: Nov 4, 1983. Publicly Released: Nov 4, 1983.

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Pursuant to a congressional request, GAO reviewed the: (1) Navy's progress in improving physical inventory controls; (2) magnitude, causes, and impact of physical inventory adjustments in the Army, Air Force, and Defense Logistics Agency (DLA); and (3) adequacy of Department of Defense (DOD) policies, procedures, and efforts to improve physical inventory controls and inventory record accuracy.

GAO found that the Navy is making good progress in executing a plan to improve physical inventory controls and security over supply system inventories, and it has completed an immediate action designed to establish accurate inventory record baseline data. GAO also found that the magnitude and impact of the inventory accuracy problem in the Army, Air Force, and DLA are much greater than previously recognized by DOD and its components. These inaccuracies frequently have an adverse impact on supply economies and degrade the readiness of military forces. DOD is in the process of implementing a DOD-wide physical inventory improvement plan that calls for a series of actions to be taken through fiscal year 1985 to identify needed improvements in policies, procedures, and standards for upgrading inventory record accuracy. GAO concluded that, although the plan is a positive step, more steps need to be taken to enhance the accuracy of inventory records.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should expand the frequency and scope of quality control checks of work processes affecting inventory record accuracy at both the depot and inventory management levels. At a minimum, expanded quality control programs should include weekly sampling checks of the quality of research efforts to identify and correct recurring error causes, as well as the validity of reconciliations of major physical inventory differences and reversals of physical inventory adjustments. Also, it should be required that quality control results be reported to depot and inventory control point commanders and higher management levels and that a feedback system be established to ensure that problem areas repeatedly noted by quality checks are corrected promptly.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should require inventory management levels to report the results of causative research of physical inventory adjustments to higher management levels and establish a feedback system to ensure that recurring error causes are being identified and corrected. Also, inventory management levels should be required to report results of causative research to affected depots and have the depots use the results to identify problem areas warranting expanded quality control coverage.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: DOD did not agree with the first part of this proposal. However, it stated that the MILSTRAP revision establishes more stringent controls by which reversals can be processed and provides for reporting these reversals to top management.

    Recommendation: The Secretary of Defense should rescind the recent DOD policy changes that: (1) increase the timeframe for reversing physical inventory adjustments from 90 days to 1 year; and (2) increase the dollar criterion for researching physical inventory adjustments for pilferable items from over $2,500 to over $4,000.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should direct the Air Force to comply with the intent of the DOD policy by limiting preadjustment research to reconciliations of physical differences caused by recent unprocessed transactions that occurred immediately before or during the physical inventory control period.

    Agency Affected: Department of Defense

  5. Status: Closed - Not Implemented

    Comments: It was the position of DOD that establishing standards was not practical because of the great diversity of items managed by DOD components.

    Recommendation: The Secretary of Defense should establish uniform standards for gross physical inventory dollar adjustment ratios based on the value of materiel inventoried. Also, uniform standards should be established for reversals of physical inventory adjustments.

    Agency Affected: Department of Defense

  6. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should require that reversals to physical inventory adjustments be viewed equally with physical inventory adjustments by DOD and its components in assessing overall inventory record accuracy performance.

    Agency Affected: Department of Defense

  7. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should require the Inspector General and inventory control review teams in the services and DLA, as a part of their periodic annual inspections, to examine the quality of physical inventory performance, including the adequacy of efforts to identify and correct recurring error causes, as well as the validity of reconciliations of physical inventory variances and reversals of physical inventory adjustments. The Secretary should also require more frequent and indepth service and DLA-wide coverage of wholesale physical inventory controls and inventory record accuracy by internal audit organizations.

    Agency Affected: Department of Defense

  8. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should expand DOD plans to develop procedural requirements and techniques to relate impact of physical inventory adjustments on requirements determination and procurement to include identification of adjustments affecting mission essential items. The Secretary should also require that data on physical inventory adjustments affecting requirements, procurements, and mission essential items be reported to DOD and be included in the quarterly inventory control effectiveness report.

    Agency Affected: Department of Defense

  9. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense, to improve physical inventory controls and inventory record accuracy, should adopt on a DOD-wide basis actions taken by the Navy to require that merit pay objectives/performance evaluations of military and civilian personnel involved in functions affecting inventory record accuracy include a mandatory entry on inventory record accuracy and materiel accountability performance.

    Agency Affected: Department of Defense

  10. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense, to improve physical inventory controls and inventory record accuracy, should adopt on a DOD-wide basis actions taken by the Navy to have top management provide clear guidance to depots and inventory managers that falsified reporting of physical inventory performance and inventory accuracy results will not be tolerated and that, if found, the strongest disciplinary actions will be taken.

    Agency Affected: Department of Defense

  11. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense, to improve physical inventory controls and inventory record accuracy, should adopt on a DOD-wide basis actions taken by the Navy to identify the training needs of depot and inventory control point supply personnel and ensure that training is provided.

    Agency Affected: Department of Defense

  12. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense, to improve physical inventory controls and inventory record accuracy, should adopt on a DOD-wide basis actions taken by the Navy to recognize inventory record accuracy as a major concern and upgrade the command priority and emphasis given to physical inventory programs.

    Agency Affected: Department of Defense

  13. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense, to improve physical inventory controls and inventory record accuracy, should adopt on a DOD-wide basis actions taken by the Navy to establish standard rewarehousing procedures that, at a minimum, will limit the amount of materiel movement to the lowest possible level, provide standard materiel movement controls to ensure that materiel location changes are reflected promptly on depot locator records, and require that either quality sampling checks or complete location surveys be made following rewarehousing projects to ensure that the new locations of rewarehoused materiel are reflected promptly and accurately on locator records.

    Agency Affected: Department of Defense

 

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